HealthSpring a good fit for Cigna

October 27, 2011

Cigna recognizes potential of Medicare Advantage market

With its purchase of HealthSpring, a large Medicare Advantage and Part D organization, Cigna is positioning for a long-term growth opportunity, according to company officials. 

“The senior segment is rapidly growing, and there's going to be sustained growth for the foreseeable future,” says Matt Manders, president of U.S. service, clinical and specialty.

In fact, even if Medicare Advantage plans only maintain their current 25% share of the U.S. senior market, enrollment is still expected to increase because of overall growth. HealthSpring markets Medicare Advantage and Part D products exclusively and serves more than 1 million members. The plan itself has been on a trajectory of organic growth and acquisitions.

 It acquired Bravo Health last year for $545 million and along with it, several urgent care centers in the Philadelphia area, adding to HealthSpring’s three existing clinics. Such investment on the delivery side of healthcare has become a noticeable trend among payers.

Manders says Cigna will keep HealthSpring’s clinics because they align with the company’s customer-engagement model. Cigna’s current individual memberswill have the opportunity to migrate to the Medicare Advantage plan offerings as they transition to Medicare, he says. And what Cigna adds to the equation is its already established specialty and clinical capabilities.

By leveraging care-management infrastructure, the Medicare Advantage line of business can remain viable even under reduced federal payments. Accurate risk adjustment and wellness programs will be key to Cigna’s strategy.

In contracting with providers, HealthSpring’s performance-based reimbursement model rewards those who achieve positive clinical outcomes. Its Partnership for Quality program handed out $70 million in provider bonuses in 2009.

“HealthSpring brings a unique and highly successful business model partnering with healthcare professionals to align incentives around performance and quality of outcomes,” says Manders. “In fact, we will look to apply best practices to our own physician engagement model for stronger results.”

He also says the Medicare Advantage plans will benefit from Cigna’s nationwide relationships with physicians and hospitals and its financial strength and resources to support further growth.

Under the $3.8 billion deal, Cigna is paying about $500 per member for HealthSpring’s nearly 800,000 Part D customers, and about $10,000 apiece for its 340,000 Medicare Advantage members, according to analysts at Citi. Cigna has 46,000 Medicare Advantage members of its own, and the acquisition represents a significant expansion into the segment.